RBA Holds Cash Rate Steady Unexpectedly; Trims Growth And Inflation Outlook

Daniel Fowler
May 10, 2019

Although interest rates are still expected to be cut later in the year (many now suspect a cut in September), this gives ample time for other central banks to present their own cases for rate cuts, which may reduce much of the policy-based incentives for selling Aussie dollars. Housing conditions remained soft and rent inflation remained low.

The vast majority of economists believe it won't be, even though there's some indecision as to whether or not the RBA will cut rates today.

"The strong employment growth over the past year or so has led to some pick-up in wages growth, which is a welcome development".

Lowe said a further improvement in the labour market is needed for inflation to be consistent with the target.

Dr Lowe welcomed reports of skills shortages in some sectors and signs of wages growth related to strong employment growth over the past year, but noted that any further rise in salaries is likely to be gradual.

With the jobless rate around 5%, that means there will be only a slow fall in unemployment over the next two years.

"The upshot is that we still expect rates to be lowered over the coming months", he said.

"The Board judged that it was appropriate to hold the stance of policy unchanged at this meeting".

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"The funding costs of the banks depend on the wholesale market and they sometimes like not to pass on the full RBA cut to reflect that", he says.

The RBA revised down its growth forecast to 2.75 percent for 2019, from previous outlook of 3 percent.

But "if the labor market remains surprisingly resilient, the risk is now a later move", UBS economist George Tharenou said in a note. The RBA said in yesterday's statement: "In headline terms, inflation is expected to be around 2 percent this year, boosted by the recent increase in petrol prices", the RBA forecast.

"The low level of interest rates is continuing to support the Australian economy". But if that looks like not happening, will the central bank cuts rates.

The Reserve Bank has held its fire on interest rates, keeping the cash rate on hold.

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital says his expectation was that the RBA would cut at this meeting particularly given the weak March quarter inflation outcome.

The decision to keep interest-rates on hold has also steered the RBA clear of any political entanglements, with a federal election due on May 18. "We have pencilled in a cut for June but concede that the RBA may wait a bit longer given that there is only one month's worth of jobs data to be released between now and then", says Oliver.

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